Should I Take Out New Debt Before a Bankruptcy? The Don’ts and the Don’ts
Posted on Wednesday, January 21st, 2015 at 4:23 pm
Should you take out new debt just before filing bankruptcy? No. No no no no. Please don’t. For those who are looking for a short and easy answer from an attorney, look no further. For those who want to know how taking out new debt right before filing bankruptcy can ruin your chances for a discharge, read on.
Bankruptcies Have to be Filed in Good Faith
Bankruptcies need to be filled in good faith like debt must be taken out with the good faith that you intend to pay it back. Taking out a debt with intent to discharge it in bankruptcy makes both taking out the debt and filing the bankruptcy an exercise in bad faith. The law sets an arbitrary cut off for when a debt is presumed to have been taken out in bad faith. If you take the debt out within 90 days prior to filing a bankruptcy, there is a presumption that the debt will be non-dischargeable. If you charge a de minimus amount to a credit card – say you mistakenly ring up a $7 lunch on your Mastercard – it’s unlikely the creditor will pursue the matter in court. But racking up debts of more than $500 within that 90 days is almost certain to call the creditor’s attorneys into court with you.
Usually If You Take Out Debt Just Before a Bankruptcy, You Can’t Add That Debt to the Bankruptcy
The penalty for taking out debt prior to filing is usually that the debt is non-dischargeable. This means that you can’t get rid of the debt in bankruptcy. The problem is that the entire debt is non-dischargeable, not just the amount you charged within the 90 day period. Let’s assume you have $10,000 on a Discover Card, and you add another $600 to it about a month before you file. If Discover comes to court to enforce the non-dischargeability of the debt, you now have a $10,600 debt that survived the bankruptcy. In cases where the court feels the Debtor’s behavior was especially bad, the court could kick out the entire bankruptcy and prevent the Debtor from filing again.
But Circumstances Matter; Creditors Need to Prove Your Intention of Bad Faith
Not all debts incurred within 90 days prior to filing a bankruptcy fall are necessarily going to be bad faith debts. Circumstances matter, and the creditor has to prove that you intended to act in bad faith. Let’s say you have an American Express card that you regularly pay off at the end of the month. Suddenly you have a heart attack, which gets you a whole lot of medical bills that your insurance won’t pay. You’ve got to file a bankruptcy, and your AmEx is going to get roped in with the medical bills. You’d used the AmEx all the way up to the day of your heart attack, and you need to file the bankruptcy 60 days after the heart attack. Will the AmEx debt be considered bad faith? Absolutely not. A good Kenton County bankruptcy attorney will get both the AmEx bill and the medical bills discharged, and get you a fresh start on life.
You have to give your attorney full disclosure of any debts you’ve taken out prior to filing. Experienced bankruptcy attorneys, like those at Lawrence & Associates can advise you on the best way to handle your debts and the best timing in which to file your bankruptcy.
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Regardless of the reasons that brought you to financial distress, filing for bankruptcy does not make you a bad person. In fact, the government created bankruptcy in order to help people recover from unmanageable financial problems. At Lawrence & Associates, we help our clients understand how bankruptcy laws are made to protect them and will allow for a brighter financial future.
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